Inflation Threat Forces Valuation Resets for US Equities and Bonds
US equity investors have recently ignored the healthy outlook for corporate profits, choosing instead to be paranoid about the monetary response to rising wage pressures.
History suggests that a late-cycle surge in productivity is unlikely, despite the hype about higher capital spending, while the Fed’s intended policy path corroborates this usual outcome.
Rising US wage inflation presents three prospective scenarios for US equity investors, but the Fed will still be confronted with difficult policy choices.
Comparisons prevail in the US equity market between the current cycle and the late-1990s, while valuations are due for resetting due to rising bond yields.
The severity of the US government bond bear market will depend on perceptions of Fed policy under Chairman Powell and the term premium demanded by investors, due to rising inflationary expectations, as well as the long-dated debt issuance policy of the US Treasury.
DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the intention of delivering independent global macro investment insights and new thematic long-term ideas to investors, along with an agnostic opinion of the markets.
Said DeSaque has over 29 years of experience working as a professional economist in financial services, primarily based in London. His working role has involved extensive travel around the world, bringing him into contact with investors of different cultural backgrounds and investment requirements. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist and Investment Strategist at US banks Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he became Head of the London Economics Department in 1996. This role allowed him to engage with senior investment professionals, alongside regulators and provided a unique perspective of market intelligence at work.
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